Diageo owned United Spirits seeks protection under BIFR

The country's largest beer company has sought shareholders' approval for this on January 22, said a filing to the stock exchange.MUMBAI: Diageo-controlled United Spirits plans to declare itself sick and approach the Board for Industrial and Financial Reconstruction, as the liquor maker said its net worth has dropped below half the peak level.

The company has sought shareholders’ approval for this on January 22, it said a stock exchange filing. The development comes 18 months after Diageo acquired a majority stake in the company that was earlier controlled by Vijay Mallya.

United Spirits, which sells liquor brands such as McDowells, Bagpiper, Royal Challenge and Black Dog, said the erosion in its net worth was due to exceptional factors and it did not reflect upon the long-term prospects of the company. The company has generated cash profits during the six months ended September 2015 as it is taking steps to improve its earnings. Approaching BIFR is part of statutory requirement since 50% of its peak net worth is eroded.

Its accumulated losses touched Rs 5,045 crore for the fiscal year ended March 2015. Thereafter, it turnaround, reporting net profits of Rs 929 crore in the quarter ending September and Rs 19 crore in the three months through June. The company had outstanding loans of around Rs 5,323 crore as of March.

After Relay BV, a wholly owned subsidiary of Diageo Plc, acquired 54% of United Spirits, it re-constituted the board with the induction of various non-executive independent directors and also executive and non-executive nominee directors, the filing said. Also, it entered into agreements with overseas subsidiaries of Diageo for the manufacture and sale of key brands owned by Diageo. These agreements would enable United Spirit to gain a diverse, global product portfolio, additional sales revenue and improve its standing in the market, it said. The benefits is seen in the improved profitability in the previous two quarters ended June 30, 2015 and September 30, 2015, it added.

The company’s earnings were hurt due to diminution in the value of long-term investments in subsidiaries and loans to them. It was also hurt by a loss on the sale of shares in subsidiaries. Provision on advances to United Breweries (Holdings) and provision for doubtful debts, advances and deposits were among other reasons that led to the erosion in net worth, it said in the filing.

United Spirits said that half of its peak net worth has eroded in the preceding four financial years by its accumulated losses. The accumulated losses of United Spirits was 86% as on March 2015 of its peak net worth during the previous four financial years.

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